After the introduction and an explanation of “The Coming Oil Crisis” and “Abandoning the Solution,” the next part of “MidEast Oil Forever?” (subs. req’d) is a discussion of the “The Renewables Revolution.”

One of the great energy tragedies of the 1980s is that President Reagan gutted the renewable energy R&D budget (and the entire clean energy budget) — a stunning 90% cut in key technologies — just as America was assuming technological and marketplace leadership in core areas like wind and solar power.

One of the great energy tragedies of the 1990s is that the Gingrich Congress blocked the Clinton administration’s efforts to significantly ramp up renewable and clean energy funding, which could have restored U.S. leadership in technologies that even then were obviously going to be the foundation of major job-creating industries in the coming century.

Here is what we wrote on renewables:

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The Renewables Revolution

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Predicting our energy future beyond 2010 is chancy, but here we have an opportunity to rely on perhaps the most successful predictor in the energy business: Royal Dutch/Shell Group. According to The Economist, “The only oil company to anticipate both 1973’s oil-price boom and 1986’s bust was Royal Dutch/Shell.” Anticipating the oil shocks of the 1970s helped Shell to move from being the weakest of the seven largest oil companies in 1970 to being one of the two strongest only ten years later. Anticipating the oil bust was apparently even more lucrative. According to Fortune’s ranking of the 500 largest corporations, Royal Dutch/Shell is now not only the most profitable oil company in the world but the most profitable corporation of any kind.

When such a company envisions a fundamental transition in power generation from fossil fuels to renewable energy beginning in two decades, a transition that will have a significant impact on every aspect of our lives, the prediction is worth examining in some detail. Chris Fay, the chairman and CEO of Shell UK Ltd., said in a speech in Scotland last year, “There is clearly a limit to fossil fuel. … Shell analysis suggests that resources and supplies are likely to peak around 2030 before declining slowly. … But what about the growing gap between demand and fossil fuel supplies? Some will obviously be filled by hydro-electric and nuclear power. Far more important will be the contribution of alternative renewable energy supplies.”

Fay presented a detailed analysis of future trends in energy supply and demand, noting that the fossil-fuel peak in 2030 would occur at a usage level half again as high as today’s. Shell’s analysis does not rely exclusively on supply limits — after all, for decades people have been worried about such limits, and the supply has continued to expand — but also incorporates a recognition of the tremendous advances that have been made in renewable-energy technologies over the past two decades and that are expected to be made over the next two decades.

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Although these advances in renewables have received very little media attention, they have persuaded Shell planners that renewables may make up a third of the supply of new electricity within three decades even if electricity from fossil fuels continues to decline in cost. An “Energy in Transition” scenario that they have prepared does not assume price increases in fossil fuels — also, as we have seen, a plausible hypothesis. Nor does Shell assume any attempt by governments to incorporate environmental costs into the price of energy, even though every single independent analysis has found that fossil-fuel generation has much higher environmental costs than non-fossil-fuel generation has. According to Shell’s strategic-planning group, “The Energy in Transition future can claim to be a genuine ‘Business as Usual’ scenario, since its energy demand is a continuation of a long historical trend, and the energy is supplied in a way which continues the pattern.”

Indeed, in the past fifteen years the Department of Energy, working with the private sector, has reduced the costs of electricity from biomass (such as crops and crop waste) and wind, bringing them into the current range of wholesale costs for coal and other traditional sources of electricity: three to five cents per kilowatt-hour.

A quiet revolution has already brought the United States almost eight gigawatts of biomass electrical capacity. Gasifying biomass and using advanced turbines could bring biomass power to 4.5 cents per kilowatt-hour within a decade, according to the DOE’s National Renewable Energy Laboratory. Shell projects that by 2010 commercial energy from biomass could provide five percent of the world’s power; using Shell’s projections, we estimate that the value of that power generation could exceed $20 billion.

Over the past fifteen years electricity from wind power has declined in cost by 10 percent a year. The problems of the windmills that were rushed to market in the 1970s, such as noise and TV interference, have largely been solved. With the DOE’s help the old wind-turbine blades, borrowed almost directly from aircraft-propeller design, have been replaced with sophisticated blades designed to capture wind energy efficiently over a broad range of wind speeds and direction. Utilities are already receiving long-term bids for electricity from wind at 4.5 cents per kilowatt-hour in the best wind sites in the country. With a continued public-private partnership in technology advancement, wind could hit three cents per kilowatt-hour by 2020, and soon after that wind-power plants’ annual sales could reach $50 billion.

Photovoltaic (PV) cells, which convert sunlight into electricity, now cost one tenth what they did in 1975. The DOE has invested heavily in new thin-film PV panels, which take advantage of U.S. expertise in semiconductor fabrication. Shell expects that PVs, along with fuel cells and small gas-fired power plants, will permit the growth of distributed-power systems. In developing nations distributed sources can obviate the need for huge power lines and other costly elements of an enormous electric-power grid (much as personal computers replace large mainframe computers). PV modules sold worldwide totaled less than four megawatts in 1980 and now exceed 80 megawatts a year; sales continue to grow. The Energy in Transition scenario predicts that photovoltaics and other direct conversions of sunlight will be the most rapidly growing form of commercial energy after 2030. Sales could quickly exceed $100 billion. Shell itself has bought two photovoltaics companies.

This scenario, a highly credible one given Shell’s reputation, is tantalizing, because it holds out the possibility that the world could within a few decades begin to realize the dream of nearly pollution-free energy. Consider also that the United States, which is now the leader in most areas of renewables technology, could simultaneously reduce its dependence on foreign energy supplies, reverse the trend toward an ever-increasing energy trade deficit, and capture a large share of what promises to be perhaps the largest new job-creating sector of the international economy.

This is only a scenario; our actions today can have an impact, either positive or negative. According to Chris Fay, of Shell, “New technologies cannot leap from laboratory to mass market overnight. They must first be tested in niche markets, where some succeed but many fail. Costs fall as they progress down the ‘learning curve’ with increasing application.” The long-term nature of research, and the real potential for failure, are why many options must be pursued at once and why many private-sector companies have been reluctant to invest. Fay observes, “Renewables will have to progress very quickly if they are to supply a major proportion of the world’s energy in the first half of the next century. . . . They can only emerge through the process of widespread commercial experimentation and competitive optimization.”

Federal investments clearly make a difference in technology development and global market share. Consider the case of photovoltaics. In 1955 Bell Laboratories invented the first practical PV cell. Through the 1960s and 1970s investments and purchases by NASA, the Pentagon, and the National Science Foundation helped to sustain the PV industry and gave America leadership in world sales. In 1982 federal support for renewable energy was cut deeply, and within three years Japan became the world leader in PV sales. The Bush Administration began to increase funding for solar energy and, in 1990, collaborated with the American PV industry in efforts to improve manufacturing technology; three years later the United States regained the lead in sales in this rapidly growing industry. The Clinton Administration has accelerated funding for PVs.

Sadly, however, the cuts of the 1980s have taken their toll: in the past decade German and Japanese companies snapped up several major American PV companies, which accounted for 63 percent of the PVs manufactured in the United States. Such purchases represent huge savings for our foreign competitors. They don’t have to spend hundreds of millions of dollars to determine which technologies succeed. They need only let the United States do the basic research, and then spend a few tens of millions of dollars plucking the winners when the federal government abandons funding for applied research.

Although many members of Congress argue that the cuts in federal R&D will be made up for by the private sector, historically this hasn’t happened. When the government pulls out of an area of technology, it sends a signal to the industrial and financial communities that the area has no long-term promise and that the federal government is not a reliable partner. The situation is especially bad today, because recent studies make clear that private-sector R&D has been fairly flat since 1991, and because U.S. companies have been shifting away from basic and applied research toward incremental product and process improvement — a shift that has been exacerbated by increased international competition and the downsizing of corporate laboratories.

In addition, whereas the federal government only recently, and temporarily, increased funding for renewable energy, reversing the deep cuts of the 1980s, our foreign competitors have been steadily increasing such funding for a decade and a half. Whereas we once spent several times as much as the rest of the world combined, the rest of the world now significantly outspends us. Moreover, countries such as Germany, Japan, Denmark, and the Netherlands have far greater financial incentives for renewable energy. And their prices for electricity are typically much higher: in 1991 electricity cost Germany’s industrial sector 8.8 cents per kilowatt-hour, whereas in the United States it cost 4.9 cents per kilowatt-hour. That means renewable energy will be cost-effective in foreign countries before it is in America.

The primary competitive advantage the United States has had in renewables is technological leadership driven by long-term federal spending prior to the early 1980s and then the spending in the early 1990s. Recently Congress cut renewable-energy funding by 30 percent, and its multi-year budget plan calls for overall cuts of 60 percent or more by the year 2002. The cuts will have two effects.

First, the transition to renewables that Shell envisions will probably be slowed somewhat, since America remains the leader in many relevant renewables technologies and U.S. government funding remains a sizable fraction of R&D funding worldwide. The transition, however, even if slowed, seems inevitable at some point in the middle of the next century.

Second, when the transition occurs, the United States will miss what may well be the single largest new source of jobs in the next century. Mature areas like automobile manufacturing and aerospace haven’t been significant net job producers for the country in two decades. The most highly promoted new area — the information revolution — is unlikely to provide as many jobs as manufacturing can, because making duplicate pieces of information generates many fewer new jobs than manufacturing duplicate pieces of hardware. Yet according to Shell’s numbers, annual sales in renewable-energy technologies may hit $50 billion in 2020 and almost $400 billion in 2040. In the later year such an industry would support several million jobs.

Moreover, as said above, the United States will be importing $100 billion worth of oil annually ten years from now. With prudent federal investment today, that might be the peak, and we might then see a gradual decline as U.S. technology and domestic fuels, including homegrown biomass, replace imported oil. With Congress’s cuts, however, we may be only augmenting our debilitating trade deficit in oil with an equally debilitating trade deficit in oil-replacing technologies.